European natural gas prices indicate increased supply risks for winter

The price of natural gas in Europe this winter is becoming more expensive, indicating that concerns about tight supply and storage risks during the colder months this year are increasing. Although gas storage efforts are ongoing, the benchmark futures price for the delivery period from November to March of the following year has risen by about 7% in the past month, suggesting that traders still expect Europe may experience a harsh winter. Despite the relaxation of strict gas storage targets, uncertainty regarding storage rules has not been eliminated. Meanwhile, intensified competition for marine fuels and the possibility of unusually cold weather continue to pose risks to Europe. Last heating season, fuel inventories experienced unusually strong consumption, and the process of replenishing inventories has not been easy. "Winter gas supply will be tighter than current market pricing indicates," said Aldo Spanjer, head of energy strategy at BNP Paribas, in a report this week. "Unless we see a significant recovery in Russian gas supplies — which we believe is unlikely — or adverse weather events and/or a global economic recession that negatively impact the market, we believe there is a trade-off between summer and winter gas prices this year."